Monday, November 17, 2008

The Importance of Economics

Here is why understanding economics is important. India currently subsidizes fertilizer by an amount equal to 2.5% of its GDP (source). This subsidy is not just rent seeking. In an excellent paper describing the reasons people are averse to capitalism, they quote someone as saying...

"Attempts to remove such a subsidy [to fertilizers in India] have turned out to be politically
impossible and the majority of those opposing the removal do so not because they are
themselves adversely affected by it (as public choice theory suggests) but because they believe
that removing the subsidy will be bad for the economy."

Investigating Capitalism Aversion, published in Economic Policy in July of 2008.
Augustin Landier
David Thesmar
Mathias Thoenig

Subsidies do not create wealth, but instead forces society to purchase goods they do not want by producing goods that are valued less than they cost to produce. This is not wealth, this detracts from wealth. This is why we teach economics. This is why our job is important.

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